market price/trailing 12 mos. EPS

takes into account unusual gains/losses

market price/project 12 mos EPS

only as accurate as projections are true

compared to industry average

1.0 = identical to industry avg.

Adjust EPS to midcycle conditions

Countacts the Molodovsky effect where EPS can be cyclical for company

(P/E ratio)/growth rate

useful for companies with high growth rate and low dividends

Work backwards -  (Year 1 sales x Y%) = Z à Z x Y% …etc

 Average method = sum of growth rate %/total years

-little bit lower than avg. method

(Year 2 sales/year 1 sales)+(year 3 sales/year 2 sales) +…etc

Market value/sales(revenue)

used when earnings can be negative or startups

market price/book value per share

book value per share = shareholders equity/# of shares outstanding

Below 1.0 means the company is valued lower than liquidation price

Over 2.0 means overvalued

EV = EBITDA x multiple

Equity value = EV + cash - debt

Implied market price = equity value/shares

compare to current market price

exchange ratio = target price/acquirer price

new shares issued = exchange ratio x % of outstanding acquirer shares

new shares value = new shares x acquirer price

total value = new shares value + market cap of acquirer

value per share = total value/total # of shares

Dividend growth model

rate of return = (dividend at end of year/current price) +growth rate

price(0) = dividend(1)/(rate of return-growth rate)

FCFF = EBIT(1-T) + depreciation and amortization- capex - increases in NWC

FCFE = Net income (includes interest expense) + depreciation and amortization- capex - increases in NWC

Cash (no stock) M&A EPS calculation

accretive or dilutive

Combine income statements

Add additional interest expense from debt issued to pay for M&A

EPS of M&A = Total Net Income/acquirer # of shares

Accretive amt (dilutive) = EPS of M&A - Acquirer EPS